Rod Xiong, is the owner and Chief Executive Officer (CEO) of GFF Telecommunications Services Inc. (GFF), a private Canadian company that wholesales cellular phones. One of the defining characteristics of this industry is that it is extremely competitive given the oligopolistic nature of the wireless industry, where major service provider’s players such as FIDO and Rogers have significant buying power. One of the keys to GFF's success is that they provide exceptional service and have a loyal client base.
Arsineh Tackas, MBA, was hired as the Chief Financial Officer (CFO) of GFF in 2012. One of the reasons that Arsineh was hired was that she was very knowledgeable about IFRS and GFF wanted to prepare its financial statements. The CEO's stated reason for electing to adopt Part I was his desire to take the company public in 2013.
As CFO, Arsineh is responsible for co-signing the management letter of representation provided to the firm's auditors and as such is presently overseeing the preparation of the GFF’s 2012 financial statements. In so doing she notes that Selina Tang, the Financial Controller has included revenue from a number of transactions commonly referred to as "bill and hold,” which is a transaction where the seller bills the customer but holds the goods for shipment at a later date.
Arsineh believes that these sales may be cancelled any time prior to delivery without penalty and as such the sales should not be recorded until title to the goods has transferred.
When Arsineh asks Selina about this matter, she replied that "Rod told me to book these sales in 2012. He pointed out that the orders are seldom cancelled and that this contention was born out by the fact that the goods were all delivered in January 2013." Troubled, Arsineh thanks Selina for her time and then goes to speak to Rod about the matter. Rod invites Arsineh into his office and then closes the door behind her. When asked about his instructions to Selina, Rod replies:
“Arsineh, you and I know the game that we have to play with the big boys. They order the goods and pay for them, but we hold them in our warehouse and insure them. When they have room in their stores they take delivery. While technically they can cancel the order without penalty at any time before shipment, they seldom ever do. I believe that given our strong relationship with our client and the historical record of completed sales on bill and hold transaction that recognizing revenue in 2012 is warranted. You know that the company's shares are soon going to be offered for sale in the initial public offering. It goes without saying that recording these sales and profits in 2012 will look better to potential investors and help us achieve a better price for the shares than if we do not report them. I expect you to support me in this matter.”
Arsineh returns to her office and contemplates the recent chain of events.
Prepare the report and outline Arsineh Tackas’s professional obligations and recommend how she should proceed. Your answer should be between 800 and 1,200 words in length.